Money is something that most people think about on a daily basis. They are trapped worrying about the future and what to do with their money when it comes to investing for retirement. This is never an easy task and most of us put it off until the last minute. If you are smart, it’s good to start some kind of retirement plan early. Here are three guidelines to consider when investing in a retirement portfolio.
A report from the Employee Benefit Research Institute found that after the financial crisis in 2008, nearly 70 percent of people between the ages of 56 and 65 had stock accounts. This is considered being way too risky when nearing retirement. Most of these retirees lost half of their saving as well did early retirees. The rule of thumb is that your stock amount adequately should be 100 minus your age, For example, if you are 60, then you should only have 40 percent in stock not a high 70 percent. If you are turning 80 and just starting out, then it would be 20 percent. By using this approach, you basically reduce your risk and it gives you room to grow and protect yourself against inflation.
You also have to look at the stock you currently own. It’s best to have less high internet or bio-tech stock and more utility and large-cap stocks. These are less volatile and will pay higher dividends.
KEEP IT SIMPLE
Over time, gradually move to a more conservative portfolio. This way you don’t find yourself in risky investments that when the market goes down, you are having to postpone retirement and find yourself working again. It’s good to re-balance your portfolio every year as much as you need. The simple way to diversify for now is focus only on a few diversified funds, like the U.S. stock market, ETF or mutual funds or even mid or short-term bonds in the U.S market index fund. It also won’t hurt to begin decreasing positions in international stock index funds as well. What this blend does, is lower your costs, gives adequate diversification and mostly keep you out of financial trouble.
HAVE FIVE YEARS OF CASH IN UNCOVERED EXPENSES
This only means the amount you need to withdraw from your savings to cover specific regular costs per month. So if you spend $4,000 a month and your get $3,00 from social security and pensions, then a $1,000 is left out and not covered, which basically works out to $12,000 a year. It’s wise to keep $60,00 of your retirement nest egg in cash or cash alternatives such as a money market or savings account. That way, if the economy goes belly up or the stock market dives, you won’t be in a position that will force you to sell during those bad times.
When thinking about retirement the goal is to grow on a nest egg. That’s how you should plan and strategize for your personal portfolio.